Yes, even if your lender files for bankruptcy, you still have to pay your mortgage. As part of the bankruptcy process, your loan is likely to be sold to another company and you are expected to continue with payments. Still, many NQM lenders will face challenges when loan values start to fall, as many are now taking steps from the Federal Reserve to raise interest rates. But what does the problem surrounding these NQM mortgages actually mean? And what does this mean for non-traditional buyers trying to gain a foothold in the market? If you stop paying your mortgage, you could run the risk of foreclosure by whoever ends up owning your loan after the bankruptcy process is over.
You're getting ready to close your mortgage, but you learn that your lender or bank is in a desperate financial situation. Generally, if your loan has already been closed and financed, it shouldn't be affected if your lender or servicing entity files for bankruptcy or bankruptcy. On the other hand, sellers may be more motivated by cash offers, which typically speed up the closing process by eliminating traditional mortgages and rising market interest rates. The Federal Deposit Insurance Corporation (FDIC) generally works with other lenders to pay off orphan mortgages, and the process is done quickly enough to avoid interruptions in repaying the loan.
First Guaranty filed for bankruptcy protection, while Sprout's mortgage simply closed earlier this summer. NQMs use non-traditional methods of income verification and are often used by those with unusual income scenarios, are self-employed, or have credit problems that make it difficult to obtain a qualifying home loan. It's important to keep in mind that if you have a mortgage through a lender that is now bankrupt or has disappeared, that doesn't mean your mortgage will disappear. If you have a mortgage and your bank closes, you may be wondering if that gives you a card to get out of jail.
Once again, if your mortgage lender fails or files for bankruptcy, nothing should change for you personally. When values fall, non-bank lenders don't always have access to emergency funding or diversified assets that they can use as the largest bank lenders. And Sprout Mortgage, a couple of firms that specialized in non-traditional loans that didn't qualify for government support, recently ran aground, real estate experts are starting to question.